A Comparison between Formal and Informal Mutual‐credit Arrangements

We analyze under what conditions a group of potential entrepreneurs prefer to form a Rotating Savings and Credit Association ( ROSCA ), or a mutual‐guarantee association, which we interpret in a rotating scheme and call Rotating Savings and Collateral Association ( ROSCoA ). We argue that: (1) ROSCA s ( ROSCoA s) are likely to be more developed in countries with high (low) bank concentration; (2) the individual flow of savings required to participate in a ROSCoA is generally lower than that needed in a ROSCA ; (3) under the assumption that members share their project income at the end of each period, ROSCA s and ROsCoA s are sustainable even without the use of sanctioning mechanisms.